Owners of small and medium-sized businesses face a range of challenges that require diverse skills to overcome. While entrepreneurs have the expertise to run their business, they may not necessarily have the financial know-how to optimize their company’s financial performance. After all if they did, they probably would have started their own financial or accounting practice.
This is where a fractional CFO (Chief Financial Officer) can be a valuable asset.
A peak inside:
What is a Fractional CFO
A fractional CFO is a financial expert who provides businesses with strategic financial guidance and advice on a part-time basis. This allows businesses to leverage their financial expertise without taking on the added costs of a full-time CFO (more on that below).
Read our comparison of Bookkeepers, Controllers and CFOs here for more.
When Should you Hire a Fractional CFO for Your Busines
Before we look at costs, when should business owners consider hiring a fractional?
The short answer: when you business hits $1-5 million/year in revenue.
The longer answer is that revenue doesn’t tell the whole story, but it is one of the easiest benchmarks. Why? Businesses below $1 million in revenue will typically lack financial and administrative burden to necessitate a fractional CFO (and the resources to hire one). Hiring a bookkeeper or an accountant generally makes the most sense for these businesses.
However, once they pass this mark, the financial and administrative functions reach a level where a Fractional CFO can provide real ROI (return on investment).
On the other extreme, when a business hits $50 million + in revenue it starts to make sense to hire a full time CFO in-house alongside a team to manage financial operations.
How can a Fractional CFO Help Your Business?
As we mentioned, revenue doesn’t tell the whole story, and it can be helpful to look at the specific benefits to determine if you should hire a Fractional CFO. Here are some key areas where fractional CFO services can provide significant value:
Cash flow management:
Cash flow is the lifeblood of any business, and effective cash flow management is crucial for a company’s success. A fractional CFO can help business owners manage cash flow effectively by creating cash flow forecasts, identifying opportunities to improve cash flow, implementing strategies to optimize working capital, and improve financial health.
DYK: A business can be profitable, but still fail due to poor cash management?
Financial planning and analysis:
Effective financial planning and analysis is essential for a business’s growth and success. A fractional CFO can help businesses create financial models and forecasts, analyze financial data, and provide insights and recommendations for achieving financial goals and improve financial processes.
A fractional CFO can help businesses make strategic financial decisions by providing expert analysis, financial reporting, and financial planning. They can also provide guidance on mergers and acquisitions, fundraising, and other critical financial decisions.
Managing costs is a critical aspect of running a business. A fractional CFO can help businesses identify opportunities to optimize costs, reduce expenses, and improve profitability.
Investor relations are an essential aspect of any business looking to raise capital. A fractional CFO can help businesses manage investor relations, prepare financial reports and presentations, and ensure compliance with regulatory requirements. Having an experienced CFO on your team can provide a lot concrete value through tangible assets like financial forecasts, but they also bring a level of trust with potential investors which can be invaluable.
Accounting and bookkeeping:
While most small and medium-sized businesses have bookkeepers and/or accountants to manage financial tasks, they may not have the expertise required to handle complex financial transactions or regulatory compliance issues. A fractional CFO can provide oversight and guidance to ensure accurate financial reporting, compliance with regulations, and effective accounting practices.
The Costs of Hiring a Fractional CFO
As we’ll see hiring a Fractional CFO provides large savings over the alternative. But how much does it cost?
Fractional CFOs will typically charge between $200-350/hour for an experienced Fractional CFO.
So for the sake of argument lets calculate what it would costs to bring on a Fractional CFO for 20 hours/month using both extremes of this price range.
On the low end: $200/hour x 2o hours/month = $4,000/month = $48,000/year
On the high end: $350/hour x 20 hours/month = $7,000/month = $84,000/year
This may initially sound like a lot, but by taking a look at the in-house costs we can see just how much you could save.
Cost savings: In-House VS Fractional CFO
Let’s start by looking at the average salaries for CFOs in Canada and the US in 2023.
According to Indeed:
The average CFO salary in Canada in 2023 is $133,480:
And the average CFO salary in the US in 2023 is $148,750:
CFOs will also expect other extensive benefits such as health benefits and profit sharing. All in, the true cost of hiring a full-time CFO can easily reach $200,000/year, or more, as you can see in some of the current jobs listed on Indeed.
Put in this context, the $48,000-84,000/year to hire a Fractional CFO is now a savings of potentially $150,000 or more!
What are the Most Important Qualities of a Good CFO?
So what should look for, besides costs when looking to hire a CFO (either in-house or fractional).
Strategic thinking: The CFO role is strategic in nature, and they need to be able to see the big picture and anticipate future trends. They should be able to think creatively and develop a financial strategy that aligns with the company’s overall business goals and financial forecasting.
Analytical skills: Strong analytical skills are essential to interpret complex financial data, identify trends, maintain accurate financial statements, and provide insights to support decision-making. They should also be able to develop financial models to forecast future performance and identify areas for improvement.
Strong communication skills: Beyond financial management, CFOs need to be effective communicators, able to convey financial information to stakeholders in a clear and concise manner. They should be able to translate financial data into actionable insights that non-financially inclined stakeholders can understand.
Leadership: As the head of your financial team, a CFO should be a strong leader, with the ability to inspire and motivate their team. They should also be able to collaborate effectively with other executives and departments to achieve common goals.
Risk management: A CFO should be able to identify and manage financial risks effectively. They should have a solid understanding of financial regulations and compliance requirements and ensure that the company is operating within these guidelines.
Industry knowledge: Depending on your industry, you may find it beneficial to seek a CFO with industry experience. On top of bringing specialized financial knowledge, a finance professional can potentially bring invaluable business insights to your management team.
Looking for an all-star advisor? Check out the top 10 advisor of the year 2022 winners.
The Bottom Line
Hiring a fractional CFO can be highly beneficial for small and medium sized businesses that need expert financial guidance without the cost of a full-time CFO.
By leveraging the expertise of a fractional CFO, businesses can optimize cash flow, manage costs, make strategic decisions, and ensure compliance with regulatory requirements. If you’re a business owner who needs financial guidance, consider hiring a fractional CFO to help you achieve your goals.
Until next time!